Trade Debate Turning On A Chip

March 02, 1986|By Bill Neikirk, Chicago Tribune.

WASHINGTON — The computer chip, not the automobile or steel, is the subject of America`s hottest trade case.

To White House officials, it poses a dangerous precedent--the prospect that the world semiconductor industry will be carved up into national cartels (much as steel and autos have been already) to the detriment of consumers everywhere.

To American chipmakers, unfair competition by the Japanese threatens the very existence of their industry and the nation`s future leadership in high technology.

This case has become a metaphor for all that`s wrong with our trading relationship with Japan and the agonizing practical problems of redressing our grievances.

The Japanese have captured 20 percent of the U.S. semiconductor market through practices that appear illegal under trading rules, yet U.S. firms have seen their market share in Japan remain at 10 percent for years.

``What they`re really after in the U.S. is the downstream industries, such as telecommunications,`` said Gilbert Amelio, president of Rockwell International`s Semiconductor Products Division. ``That`s their real agenda.`` The case aims to cut through the thick protective layer of Japanese custom and culture that effectively bars U.S. firms from obtaining a higher market share there. ``We want orderly progress over the next five years to increase market share in Japan,`` Amelio said.

The real question is whether the U.S. industry is trying to obtain a guaranteed market share in Japan--a quota, if you will. Bruce Ladd, Motorola Inc.`s Washington representative, says not, but many in the Reagan

administration believe the industry`s complaint against the Japanese is tantamount to a quota.

``Although they haven`t put any numbers on it, they want a guaranteed market share in Japan,`` said one White House aide. ``We don`t want to cartelize our semiconductor industry.``

The steel and auto industries have been effectively carved up in the last decade. The losers have been consumers, who have had to pay higher prices for the variety of quotas and trade restrictions.

``We should concentrate on giving them access to the Japanese market rather than giving them sales,`` said Robert Lawrence of the Brookings Institution. ``It`s one thing to force the Japanese to open their markets. It`s another to force them to buy from you.``

Amelio scorns the notion of cartelization. A cartel already exists in Japan, he said. ``The six largest consumers of semiconductors are also the six largest producers. The clout of the six is quite enormous. It`s an unofficial cartel operating in cooperation with the Japanese government.``

The White House aide concedes that ``there`s a heck of a lot of vertical integration in the Japanese industry. Often the consumer companies have some equity relationship with the manufacturer of silicon. Their equity might be small, but everyone owns 2 to 3 percent of each other. It`s unbelievable.``

The fact that U.S. market share has remained constant for so many years is ``prima facie evidence that something is going on,`` he added. ``The complaints are probably legitimate. The issue is how we (respond).``

President Reagan wants to get this settled quickly, ordering his trade officials to come up with an answer before a June deadline. Reagan`s negotiator, Michael Smith, will go to Tokyo this week to press for greater access for U.S. semiconductor firms, but will stop short of asking for quotas. The U.S. feels it has considerable leverage. The industry`s complaint alleges that the Japanese have been dumping computer chips in the U.S. for years. Dumping means selling semiconductors here at prices well below what they sell for in Japan. This is illegal under international trade law, and the U.S. has the right to slap an import tax on Japanese chips if it finds dumping.

The administration has tentatively decided that the Japanese chipmakers are dumping their products in the U.S., and a final decision is expected soon. U.S. officials believe the Japanese are frightened of the dumping action and may be willing to bend.

Amelio said the U.S. industry has suffered losses and added that the cut- rate pricing will sooner or later cut into the money it puts out for research and development aimed at keeping the U.S. at the leading edge of technology.

He said Japanese firms aren`t as afraid of U.S. dumping actions as the administration might believe. Yet, he is optimistic that congressional support --and Japanese fear of protectionist legislation--will lead to a settlement.

Motorola`s Ladd said the Japanese have ``hired some mighty big guns``--

including a former U.S. trade representative, William Walker, and Gray and Co., a public relations firm with close ties to the administration--to press their case in Washington.

``They retain the best,`` he said. ``They know how easy it is to stymie activity in the administration.``